12
HOME OWNERSHIP
GENERAL COMMENTS
Most students readily acknowledge a personal goal of someday owning their own home. This
“American Dream” remains alive and vivid throughout society. In this chapter, we emphasize the
mechanics of how your students, as future buyers, may locate and finance the purchase of homes with a
minimum of legal problems. Their parents, relatives, and older friends could be indirect beneficiaries of
this information. We hope this review will take the place of the need to discuss legal remedies that exist
for remorseful homeowners or disappointed sellers.
Our primary goal in this chapter is to provide a useful guide to students who, in the foreseeable future,
will become active participants in the biggest single economic event in their lives and private some basics
in real property law.
CHAPTER SUGGESTIONS
1. This chapter contains descriptions of various documents used in real estate transactions, together
with necessary definitions of many real estate terms. In class lectures, we have found it effective to
follow a logical sequence of topics, beginning with the hunt for a suitable, available, pre-owned
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2. We have found that requiring our students to prepare an amortization schedule for a mortgage loan
is very useful. To keep this kind of assignment manageable, we permit students to assume that
mortgage payments are made annually instead of monthly. Thus, they must schedule only 30
3. A real estate agent can be invited to class to respond to questions about home ownership in your
community. Your students should be forearmed with questions, such as: What areas do you farm?
What are the advantages to farming an area instead of working the entire community? How does
farming help home buyers and sellers? What is the commission rate charged? Is it computed as a
function of the seller’s equity? Is that important? How the costs of sale are customarily divided in
this community? Is it realistic for a homeowner to sell without hiring an agent? Are prices
increasing or decreasing in the community, and why? Are there issues of ethics between sales
agents in the community? Sales agents can be relied upon to bring to class many interesting stories
to share concerning buying and selling homes. Advising the agent of the types of questions that will
be asked is a standard courtesy.
4. A mortgage broker can be invited to class to discuss available financing programs for first-time
5. Real property is a cyclical business. Depending on where your area is in the cyclical affects
attitudes about the value of property ownership, financing and related issues. This provides a real
6. As this book goes to print problems concerning certain real estate financing of so-called sub-prime
lenders have arisen An investigation of these problems could be timely and a lesson about the
7. There are lots of topics for student research. To name a few: How available is information about
real estate in your area? Probably a short search on the internet can find out a lot of information
about any particular piece of property. How are real estate transactions handled? What is the
business model for sales in your state in your area? In some states attorney’s are very involved in
home sales and in other states they are hardly involved at all. What is the security device used to
secure real estate in your state? What protections exist for a defaulting borrower? What type of
recording is expected for real estate? How does it affect later purchasers? Do student realize the
limitations of title insurance? What types of real estate deeds are used in your state? Why?
Home Ownership 3
Van Camp v. Bradford
1. A patent defect is one that is readily observable. A latent defect is present but not readily visible
or observable. This case is about a psychological defect, “namely, that the property was rendered
unsafe for habitation by the plaintiff due to the serious crimes that had occurred in and near the
residence” and such a defect would be latent because it is not readily discoverable by the eye.
2. The facts tell us the contract had already been created. “Before closing and during a walk-through
inspection of the premises with defendant Bradford, with defendant Patton and defendant Hoff
3. Both the seller’s and buyer’s agents were sued. They were Patton, the listing agent, who
represented the seller; Campbell, the broker; and Hoff, the cooperating agent, who ostensibly
represented the buyer. In most states, the cooperating agent is really also an agent of the seller
4. This is an error in the textbook as we deleted the Stambovsky case (for space reasons) but
mistakenly left this question. The case is provided at the end of this chapter of the IM if you wish to
5. The question is geared towards the real estate professionals because they were the ones dismissed
from the lawsuit. The court held that since the questions were not directed at them, they had no
affirmative duty to respond. Is it morally correct to allow a person to be misled when you know it
has occurred? What special duty, if any, exists for the cooperating agent? Does any duty exist to tell
the buyer that he or she is not really acting in the buyer’s interest?
6. The Ohio statute went into effect over a year after this transaction. What’s important is that the
statute did not apply in this case.
ANSWERS TO QUESTIONS AND PROBLEMS
1. The commission would be $7,500 (0.06 x $125,000). If the house was selling for 1,000,000 the
commission would be $60,000. There is little difference in the effort expended by agents no matter
the equity or value or the property although the impact upon sellers is quite significant. Thus, the
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is entrenched in our system, and negotiations by a seller for an hourly compensation basis would be
futile.
2. When agents solicit the listings, they typically provide pricing information (market data consisting
of prior and pending sales in the neighborhood) and suggestions about preparing the home for sale.
Once the listing is signed, agents almost always place their offerings in multiple listing services.
3. The purpose of this question is to encourage the students’ imaginations to flow freely. In the
chapter there are a number of questions that should be asked, and creative students should be able
4. The Kloses won. They had acquired title to the 30 inches by adverse possession over more than the
21-year period required by Pennsylvania law. The Kloses had actual, continuous, exclusive, visible,
notorious, distinct and hostile possession of the 30-inch strip for more than 21 years, and thereby
fulfilled all legal requirements necessary to obtain title by adverse possession. In some states, the
adverse possessor also must pay property taxes on the disputed property for the requisite number of
years.
5. The most important factor for such a seller to consider is: what legal remedy is available to
promptly and inexpensively evict this person if there is a default in monthly payments? Since there
6. Choices (a), (b), and (e) would be the preference of most borrowers, absent some special
circumstances (such as a 15-year loan to obtain a very attractive interest rate). Choices (d), (f), and
7. Typically, there are no disadvantages in buying with a lease-option, assuming the price is justifiable
in the market and that no serious defects exist. Leasing with an option to buy is an excellent
8. There really is no correct answer to this question; its purpose is to cause the students to contemplate
the impact of changing interest rates upon their ability to purchase homes in the future. Table 12-2
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indicates the impact of interest-rate changes upon hypothetical loan amounts to assist the students
in forming their answers. Students should recognize the possibility of refinancing when interest
rates fall below their present rate and the impact of rising interest rates on ARMs.
9. Students should be able to identify the different kinds of amenities associated with a single-family
detached home compared with those of a condominium. Many are identified in the chapter, and
many more ought to be identified by the students.
STAMBOVSKY V. ACKLEY
169 A.D.2d 254, 572 N.Y.S.2d 672 (New York, 1991).
Jeffrey Stambovsky, the plaintiff, was horrified to discover that the house he contracted to buy was widely believed
to be possessed by ghosts. These ghosts had reportedly been seen by the defendant seller and members of her family
on numerous occasions over the nine years prior to the sale of the house. The defendant had reported the presence
of ghosts in both a national publication (Readers’ Digest) and the local press. The plaintiff buyer, a resident of New
Justice Rubin delivered the opinion: The unusual facts of this case, as disclosed by the record, clearly warrant a
grant of equitable relief to the buyer who, as a resident of New York City, cannot be expected to have any
familiarity with the folklore of the Village of Nyack. Not being a “local,” plaintiff could not readily learn that the
home he had contracted to purchase is haunted. Whether the source of the spectral apparitions seen by defendant
seller are parapsychic (paranormal psychological phenomena, e.g., telepathy or clairvoyance) or psychogenic
(originating in the mind), having reported their presence in both a national publication (Readers’ Digest) and the
local press (in 1977 and 1982, respectively), defendant is estopped to deny their existence and, as a matter of law,
the house is haunted.
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While I agree with supreme court that the real estate broker, as agent for the seller, is under no duty to disclose to
a potential buyer the phantasmal reputation of the premises and that, in his pursuit of a legal remedy for fraudulent
misrepresentation against the seller, plaintiff hasn’t a ghost of a chance, I am nevertheless moved by the spirit of
equity to allow the buyer to seek rescission of the contract of sale and recovery of his down payment.
It has been suggested by a leading authority that the ancient rule which holds that mere nondisclosure does not
constitute actionable misrepresentation “finds proper application in cases where the fact undisclosed is patent, or the
plaintiff has equal opportunities for obtaining in formation which he may be expected to utilize, or the defendant has
no reason to think that he is acting under any misapprehension” [Prosser, Law of Torts, §106 at 696 (4th ed., 1971)].
However, with respect to transaction in real estate, New York adheres to the doctrine of caveat emptor and imposes
no duty upon the vendor to disclose any information concerning the premises … unless there is a confidential or
fiduciary relationship between the parties … or some conduct on the part of the seller which constitutes “active
concealment….”
The doctrine of caveat emptor requires that a buyer act prudently to assess the fitness and value of his purchase
and operates to bar the purchaser who fails to exercise due care from seeking the equitable remedy of rescission…. It
should be apparent, however, that the most meticulous inspection and search would not reveal the presence of
poltergeists at the premises or unearth the property’s ghoulish reputation in the community. Therefore, there is no
sound policy reason to deny plaintiff relief for failing to discover a state of affairs which the most prudent purchaser
would not be expected to even contemplate. Where a condition which has been created by the seller materially
impairs the value of the contract and is peculiarly within the knowledge of the seller or unlikely to be discovered by
a prudent purchaser exercising due care with respect to the subject transaction, nondisclosure constitutes a basis for
rescission as a matter of equity. Any other outcome places upon the buyer not merely the obligation to exercise care
in his purchase but rather to be omniscient with respect to any fact which may affect the bargain. No practical
purpose is served by imposing such a burden upon a purchaser. To the contrary, it encourages predatory business
practice and offends the principle that equity will suffer no wrong to be without a remedy.
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All concurred except J. P. Milonas and J. Smith, who dissented in an opinion by Justice Smith: I would affirm
the dismissal of the complaint…. The parties herein were represented by counsel and dealt at arm’s length…. There is
no allegation that defendants, by some specific act, other than the failure to speak, deceived the plaintiff…. Finally, if
the doctrine of caveat emptor is to be discarded, it should be for a reason more substantive than a poltergeist. The
existence of a poltergeist is no more binding upon the defendants than it is upon this court. Based upon the
foregoing, the motion court properly dismissed the complaint.
For Critical Analysis
Early in his opinion, Justice Rubin made the following statement: “…. defendant (seller) is estopped to
deny their (the ghosts’) existence and, as a matter of law, the house is haunted.”
1. Does this mean that all future buyers must be told the house is haunted because, as a matter of law, it is? Or does
this rule apply only to the seller in this case?
Answers to Stambovsky v. Ackley critical analysis questions
1. Ackley, the seller in the case, promoted the existence of ghosts in his house widely. It was his
publicizing of ghosts that estopped him from denying their existence to the buyer, Stambovsky. Thus,
the rule only applies to Ackley. New sellers are not subject to the rules unless they engage in similar
promotions.
2. The rule is too broad. The rule of estoppel typically applies to persons in a special relationship, such as
seller and buyer. Furthermore, estoppel is usually applied against a party who is not “doing equity” in
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3. The Justices distinguished the rule of caveat emptor on the basis that it should not apply where even a
careful and prudent buyer could not be expected to ask the relevant question (in this case, “Is the house
haunted?”).